November 15, 1948 FOMC Minutes

FOMC minutes

In connection with Mr. Thomas' remarks, reference was made to memoranda on the Outlook for Bank Reserves and Treasury Financing and Current Money Market Developments, dated November 5 and 12, 1948, respectively, copies of which have been placed in the files of the Federal Open Market Committee. In response to a request from Chairman McCabe, Mr. Rouse discussed possible conditions in the Government securities market and what might be done in the System open market account to meet changing conditions. There followed a discussion of what should be said to Secre tary Snyder when Chairman McCabe met with him again and there was agreement that the announcement of the December and January refund ing should be deferred. It was also agreed that a draft of letter to Secretary Snyder should be prepared by Messrs. Morrill, Thomas, Riefler, and Rouse for consideration by the Committee after luncheon. Thereupon, the meeting recessed and reconvened at 3:15 p.m. with the same attendance as at the morning session, except that Mr. Thomas was not present. Mr. Carpenter read the draft of letter to the Treasury pre pared in accordance with the understanding at the morning session. The draft was discussed and revised and, upon motion duly made and seconded, unanimous vote, was approved in the and by following form, with the understanding that, possible, Chairman McCabe would deliver if it to Secretary Snyder this afternoon:

"In a meeting of the Federal Open Market Committee today I reviewed the informal discussions which we have had with you since my letter of October 13, 1948, out lining the views and recommendations of the Federal Open Market Committee with respect to Treasury debt manage ment and Federal Reserve open market policies. While Mr. Sproul was not able to attend today's meeting, be cause of illness, I have discussed these matters with him and he concurs in the views expressed in this let ter. "It is the opinion of the Committee that, notwith standing the recent slackening in the public's sales of bonds to the Federal Reserve and some evidences of hesi tation in business plans and commitments, the basic forces in the credit situation and the necessity for flexibility in Federal Reserve open market operations continue un changed. "You have indicated a desire to make an immediate an nouncement of the December and January refunding without change in rates. It is the unanimous judgment of the members of the Committee that a decision and therefore an announcement would be premature at this time for the rea son that it is not now possible to forecast market condi tions with sufficient accuracy to justify a conclusion. We understand that an announcement of specific rates on the securities to be issued in a refunding operation can be deferred until a date early in December. In the mean will continue the present support policy and time, we the benefit of market developments and can re will have the next meeting of the Federal Open Market view them at Committee which had already been set for November 30. "If notwithstanding this recommendation it is your immediately a refunding on an un decision to announce basis, I can assure you that it will be the changed rate as heretofore, to support the policy of the Committee, for Treasury certificates one-year issuing rate current the same time the Com period. At through the refunding our letter of policy stated in will continue the mittee in the Treasury bill 13 permitting flexibility October by the support of the up to the limit imposed market current certificate rate. between now and has been made that "The suggestion upon its balances the Treasury draw the end of the year on bank reserves. of continuing pressure for the purpose These funds would be used most effectively if the Treasury

"were to purchase long-term securities from the System account or, in the event the System is purchasing se curities in the market to support the long-term rate, if the Treasury were to purchase long-terms directly from the market. The Committee is in agreement with this suggestion and recommends its adoption by the Treasury. "The Committee is of the opinion that it has be come more necessary than ever to determine upon a com prehensive long-term program looking toward the re financing of the public debt including the refunding of some of the outstanding debt into issues and ma turities that the market will carry without undue re liance upon Federal Reserve support. We would like to discuss this matter with you at your earliest con venience." Secretary's Note: Chairman McCabe called on Secretary Snyder on the afternoon of Monday, November 15, 1948, and later stated that the Secretary read the letter approved by the Fed eral Open Market Committee and expressed the view that it was an excellent letter, particu larly the last paragraph with respect to a com long-term program. In the latter con prehensive nection, the Secretary said he thought the staffs Treasury and the Open Market Committee of the He also said that discuss such a program. should to think about the balance of the he would like Committee's letter overnight. Chairman McCabe that the matter had been given told Mr. Snyder at a meeting of the Federal very careful thought which lasted most of the Open Market Committee Committee would sincerely hope day and that the would accept the Committee's that the Treasury The following morning Secretary recommendation. to say that re called Chairman McCabe Snyder been pressing for an announcement porters had that under the circumstances on the refunding and than to make the announce he saw no other course that the December and ment. The announcement be an offering of cer January refunding would per cent rate was made by tificates at a 1-1/4 Treasury on November 16, 1948. the

During the discussion of the letter set forth above, there was distributed to the representative members of the Committee a confidential memorandum prepared by members of the Board's staff under date of November 12, 1948, entitled, "A Conversion Operation for Restricted Bonds", and, at Chairman McCabe's suggestion, it was understood that prior to November 30, 1948, the date of the the members of the Committee would send to the Sec next meeting, wish to express with respect to the retary any views they might proposals contained in the memorandum. Thereupon the meeting adjourned. Secretary. Approved: Chairman.